In a continuous-time Itô process market model with frictions in the form of percentage management costs and a higher interest rate for borrowing than for lending, the range of arbitrage-free prices of American Contingent Claims(ACCs) is derived, based on the principle of absence of arbitrage. Using the martingale approach, we obtain the upper and lower hedging price of ACCs.
|Number of pages||10|
|Journal||Indian Journal of Pure and Applied Mathematics|
|Publication status||Published - Oct 2007|
- Contingent claims
- Doob-Meyer decompositions